Openness and Economic Growth: A Comparative Study of Alternative Trading Regimes

While common sense would indicate that trade and growth are positively correlated, it is not clear both from theoretical and empirical perspectives whether or not trade is a proximate determinant of economic growth. The voluminous empirical efforts in this area show mixed findings. Trying to elucidate the ambiguities in the literature, we study the nexus between trade share and growth by comparing three different groups of countries: historical EEC, the extreme case of CMEA customs union, and a group of European transitional economies (TEs), largely now in the EU. The comparator group of former communist countries, in which trade-openness is not spurred by market incentives, should be very informative in explaining the impact of trade on growth. Our main finding, by applying static and dynamic panel estimators, is that the coefficient of real openness is wrongly signed for the former two samples and positive for the third. The positive link between openness and growth for the last group of countries is robust to changing in the empirical indicator of openness in the growth regressions (inter and intra-industry trade indicators). Keywords: economic growths, transition economies, capital accumulation, trade Openness, panel data JEL: O47, O42, E22,